Pakistan Economic Outlook

August 20, 2019

The economy likely capped FY 2019, which ended in June, on a sour note. Industrial production declined in April–May, while merchandise exports fell sharply throughout Q4 FY 2019. Turning to the first quarter of this fiscal year, while the IMF bailout and additional multilateral lending to the tune of USD 39 billion over the next three years should bolster the economy, it will likely only cover a portion of Pakistan’s exorbitant external financing requirements. Meanwhile, tensions between Pakistan and India escalated in recent weeks after India’s Parliament voted to remove the special status of the Muslim-dominated Jammu and Kashmir province, over which the two countries have already fought three wars. In retaliation, Pakistan has suspended all trade with India. While the economic impact at present is muted, a further escalation could hurt investor confidence and investment.

Pakistan Economic Growth

Economic growth in FY 2020 is likely to remain lackluster as Pakistan’s large twin deficits require fiscal austerity. Meanwhile, elevated inflation and tighter monetary conditions will likely dampen private consumption and investment. Exposure to external shocks, substantial financing needs and a further deterioration in relations with India represent key risks to the outlook. Our panelists see growth of 3.1% in FY 2020, which is down 0.4 percentage points from last month’s estimate, and 4.0% in FY 2021.

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